Before Applying - Credit Report & Underwriting

lolmerchant

First post, so please forgive me if I’m ignorant of any forum etiquette etc. – have had a look for similar posts but can’t find anything specific.

The wife and I are looking to purchase a house in the near future at about 90% LTV.

Combined income of about £90k and will be looking for perhaps £300-320k mortgage.

The reason for the post is that I am concerned about how lenders may interpret my credit report.

Until recently, I had a high credit utilisation around 90% of my c.£9k credit limit. This has all been paid off as a lump sum as a result of gifted money, but only within the past month.

I have also had high credit utilisation at various points in the past, but then have paid cards off either in full or gradually.

We are obviously OK from an affordability perspective; I am just concerned that the underwriting process might flag this, and obviously don’t want to start on the emotional roller-coaster of mortgage application if the likelihood of getting one is slim.

Thank you for your thoughts in advance and apologies if any information omitted.

 

[Deleted User]

No one will really care.  I've never had a case declined or an underwriter comment on credit utilisation.  

Some look at current debt to income ratio perhaps but ive not heard of utilisation being a factor before

lolmerchant

Thanks for the response.
Is it not an indication of poor money management and needing credit etc.? If the application had been a month ago, i'd have had high debt to income (or higher)... 
What if those cards had all been used to gamble or buy luxuries - i.e. something indicating poor financial management. Not that they have, but at what point do lenders care?

[Deleted User]

They generally don't see what you spend your money on.  They are generally only concerned with your record of paying debt back within pre agreed terms.
If you use your card up to its credit limit all that says as a headline is thag you are using it within pre arranged limits.  

It may even surprise you that a lot of prime lenders don't even ask for bank statements with a mortgage application. 

I think they have decided that they don't have the profit margin required to check each case with a fine tooth comb and rely on credit data as well as internal data on arrears numbers to see if it works. 

lolmerchant

So theoretically, if someone had lots of debt holding back their application, they could get a friend or family member to agree to "hold it" for 3-6 months, then the transferor could obtain a mortgage and take the debt back once the process was completed?

Seems like asking for trouble from a lender's perspective.

[Deleted User]

in theory yes, but in practice a mortgage broker should be able to question various transfers in and out of accounts.  Also a solicitor trying to verify proof of deposit might find it when they go back far enough on statements. 
But yes in theory someone could have a friend pay off all their debt and then take out new loans after it completes to pay back the friend. 

The lender makes their decision on the financial situation on application.   They cant stop anyone taking out more credit the day after they get the keys to a new home (and a lot of people do for furniture or carpets etc) . At the end of the day, the lender has their loan secured against the property so the risk to them is manageable so if it all goes belly up they will just repossess and get their money back

ACG

Having had past high credit amounts should not be an issue in the main - it may affect the scoring of your application but it is unlikely to be a significant factor, especially if the balances have come down and been reflected in your credit report. 

Thousands of things go in to scoring your application to varying amounts. This in itself should not be a deal breaker - unless you were a very borderline case to begin with. 

Lucielou1

Hi I m in pretty similar situation and wondering the same. We used a broker last month who went to our current lender to get a aip for new property. We have lots of outstanding debt but are being gifted a large sum of month this month which will pay most debts off. It went to underwriter who said we had to much debt, utalization to high and using overdrafts. The broker thought it would be ok as when the mortgage application goes it it would all be paid off. Once we have paid everything this month I want to go back to the mortgage company to ask again but I didn’t know how long is best to wait. 

[Deleted User]

Current utilisation (as reported to credit agencies) will always be an issue, but past figures shouldn't be - as long as your credit reports are updated to accurately reflect the situation.

Scoring may well be affected, but I've very rarely taken the time to work out somebody's past utilisation. If you get past credit score, you should be fine (as long as the rest of your case is ok, obviously!)